Tax Incentives For Saving For Education

Tax Incentives for Saving for EducationRecent statistics show Americans are simply not saving money for the​ future .​ To encourage savings,​ the​ government has come up with tax incentives .​ Tax Incentives for Saving for EducationHigher education in​ America is​ an​ expensive proposition .​ If you​ have a​ child in​ college,​ I​ hardly need to​ tell you​ this .​ While every parent is​ proud of​ a​ child pursuing education,​ the​ glorious event can make for some sleepless night when thinking about how to​ pay for it .​ If you​ have young children,​ the​ government has taken steps to​ make saving for college attractive from a​ tax perspective .​ There are a​ number of​ different tax incentives to​ promote saving for education .​ One such program is​ known as​ the​ Coverdell .​ A Coverdell account is​ designed to​ promote education savings by removing part of​ the​ tax penalty of​ doing so .​ The basic idea is​ that any money distributed from the​ account will not be taxed so long as​ distributions don’t exceed the​ expenses of​ pursuing education .​ Here is​ how it​ works .​ An account is​ set up for a​ beneficiary – the​ child .​ You can open one account per child and contribute up to​ $2,​000 a​ year .​ The beneficiary must be under 18 .​ Obviously,​ this is​ a​ long-term strategy since contribution amounts are limited .​ Nonetheless,​ here are some key things to​ understand:1 .​ Distributions are not taxed,​ but must be used for education costs such as​ tuition,​ books and so on​ .​

2 .​ The school can be public,​ private or​ religious and the​ money can be used as​ early as​ elementary school,​ to​ wit,​ this particular platform is​ not just for college .​ 3 .​ You can use this strategy in​ addition to​ the​ hope and lifetime learning strategies,​ i.e.,​ they don’t cancel each other out.4 .​ If distributions do not go to​ education expenses or​ are more than said costs,​ the​ beneficiary is​ taxed like income tax and a​ ten percent penalty is​ added .​ 5 .​ If the​ beneficiary completes school or​ does not go,​ the​ account may be rolled over to​ another family member .​ All and all,​ the​ Coverdell plan is​ definitely a​ long-term strategy .​ Start one now for your young child,​ however,​ and you​ will be happy you​ did when the​ tuition bills start arriving.